Quick answer

Bookkeeping is recording the financial transactions of a business: logging sales and expenses, categorising them, and reconciling them to the bank. Accounting builds on those records. It interprets them, prepares financial statements, plans for tax and advises on decisions. Bookkeeping produces the data, and accounting makes sense of it.

For a small business, the two often overlap, and one person or one piece of software may do both in part. The glossary below defines the terms an owner meets in a bank feed, in software and at tax time.

What is the difference between bookkeeping and accounting?

Bookkeeping is the daily and weekly work of keeping the records current. It covers entering transactions, matching them to bank activity and keeping receipts and invoices attached. Accuracy and completeness are the goals.

Accounting uses those records to produce meaning. It includes preparing financial statements, analysing results, planning taxes and preparing returns. Many small businesses use software or a bookkeeper for the first and an accountant for the second.

The IRS frames the records side clearly in Publication 583, where it calls the business checkbook "your basic source of information for recording your business expenses." That is bookkeeping in one sentence: capture the source information so that everything built on it, including the accounting, is sound.

Glossary of bookkeeping terms

Accounts payable. Money the business owes to suppliers and other creditors for goods or services already received. It appears as a liability until it is paid.

Accounts receivable. Money customers owe the business for goods or services already delivered. It counts as an asset until the customer pays.

Accrual accounting. A method that records income when it is earned and expenses when they are incurred, whether or not cash has moved. It gives a fuller picture of performance than cash basis.

Adjusting entry. A bookkeeping entry made at the end of a period to record items that belong to that period but have not yet been recorded, such as depreciation or an unpaid bill.

Asset. Anything of value the business owns, such as cash, equipment, inventory or money owed to it.

Balance sheet. A statement showing what the business owns and owes at a single point in time. It lists assets, liabilities and equity.

Bank feed. A connection that sends transactions from a bank or card account into bookkeeping software automatically, so they do not have to be typed in.

Bank reconciliation. See reconciliation.

Bookkeeping. The recording and organising of a business's financial transactions.

Cash basis accounting. A method that records income when money is received and expenses when money is paid. It is simpler than accrual and often used by very small businesses.

Chart of accounts. The list of categories a business uses to sort transactions, such as sales, rent, supplies and utilities. A plain, short list is easier to maintain than a detailed one.

Credit. An entry that increases a liability, equity or income account, or decreases an asset or expense account. It is one side of every double-entry transaction.

Debit. An entry that increases an asset or expense account, or decreases a liability, equity or income account. It is the other side of every double-entry transaction.

Depreciation. The spreading of the cost of a long-lasting asset, such as a vehicle or equipment, over the years it is used rather than recording the whole cost at once.

Double-entry bookkeeping. A system in which every transaction is recorded twice, as a debit in one account and a credit in another, so the books stay in balance.

Equity. What remains for the owner after liabilities are subtracted from assets. It includes the owner's investment and retained earnings.

Expense. A cost of running the business, such as rent, supplies, advertising or software subscriptions.

Fiscal year. The twelve-month period a business uses for its annual accounting. It may or may not match the calendar year.

General ledger. The complete record of all a business's accounts and transactions, from which the financial statements are built.

Income statement. See profit and loss statement.

Inventory. Goods a business holds for sale. For businesses that carry stock, the IRS lists canceled checks, cash register tape receipts, credit card sales slips and invoices as supporting documents for purchases and inventory, in Publication 583.

Invoice. A document a business sends a customer requesting payment for goods or services. The IRS names invoices among the supporting documents for gross receipts, purchases and expenses.

Journal entry. A single recorded transaction, showing the accounts affected and the amounts debited and credited.

Liability. Something the business owes, such as a loan, a bill or taxes due.

Net income. What is left after all expenses are subtracted from income. It is the bottom line of the profit and loss statement.

Owner's draw. Money an owner takes out of the business for personal use. It is recorded as a reduction in equity, not as a business expense. It is common in businesses where the owner is not on payroll.

Payroll. The process of paying employees, including calculating wages and withholdings. The US Department of Labor, in Fact Sheet 21, says employers must keep payroll records for at least three years.

Profit and loss statement. A report showing income less expenses over a period, ending in net income. It is also called an income statement.

Reconciliation. Checking that the books match the bank statement for the same period, and investigating any difference. It is how missing, duplicated or miscategorised entries get caught.

Retained earnings. Profit the business has kept over time rather than paid out to the owner. It is part of equity.

Revenue. The money a business earns from selling goods or services, before expenses are subtracted. It is also called sales or gross receipts.

Supporting documents. The records that back up an entry in the books. The IRS, in Publication 583, names cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips, canceled checks and account statements, depending on the type of entry.

Trial balance. A list of every account and its balance at a point in time, used to check that total debits equal total credits.

Uncategorised transaction. A transaction imported from a bank feed that has not yet been assigned to a category. These are the main thing to clear during weekly review.

How long do these records need to be kept?

Retention periods differ by record type. The IRS, in its guidance on how long to keep records, sets a default of three years. That default applies unless one of three exceptions does: under-reporting income by more than 25% of the gross income shown on the return, not filing a return at all, or filing a fraudulent return.

According to the same IRS guidance, the periods are six years for the under-reporting case and indefinitely for the unfiled and fraudulent cases. Seven years applies to a claim for a loss from worthless securities or a bad debt deduction. Employment tax records must be kept at least four years after the tax becomes due or is paid, whichever is later.

The US Department of Labor, in Fact Sheet 21, sets at least three years for payroll records and two years for time cards, wage rate tables and similar supporting records. California's tax agency, in Publication 116, sets at least four years for sales and use tax records, and longer during an audit. Other states are not covered here.

Where does the first step of good bookkeeping begin?

With a separate business account. The IRS says in Publication 583: "One of the first things you should do when you start a business is open a business checking account." It adds that the business account should be kept separate from the personal one.

Every term in the glossary is easier to apply when business money has its own account, because each bank feed transaction is then a business transaction. For someone who has not yet formed the business, ZenBusiness handles the formation, the EIN and the registered agent, and offers a free accounting consultation to customers who form with it. It does not offer business banking, so the account is opened with a bank of the owner's choice.

Which tools put these terms to work?

The providers below are listed alphabetically, not ranked. Prices are as of 2026-10-06, and monthly figures are ongoing prices unless labelled promotional.

  • Bench: a bookkeeping service. Bookkeeping Light is $199 per month, Bookkeeping is $399 per month and Bookkeeping + Tax is $649 per month. A fractional bookkeeper is $55 per hour plus a $1,200 onboarding fee.
  • FreshBooks: Lite $23, Plus $43 and Premium $70 per month, with Select by quote only. A promotional $1 per month for one year on Lite is not the ongoing price.
  • QuickBooks Online: Free $0, Simple Start $38, Essentials $85, Plus $140 and Advanced $340 per month. A promotional 50% off for three months is not the ongoing price.
  • Wave: Starter free, and Pro at $19 per month or $190 per year. A promotional $9.50 per month for three months on Pro is not the ongoing price. Card processing is 2.9% plus $0.60, the receipts add-on is $8 per month and payroll starts from $25 per month.
  • Xero: Early $27, Growing $59 and Established $97 per month. A promotional 80% off for three months is not the ongoing price.
  • ZenBusiness Money Pro: $30 per month, sold as an add-on alongside formation. Its published description covers custom invoicing, revenue and expense tracking, and tax preparation tools. It is a bookkeeping service rather than accounting software, so it does not compare feature for feature with the self-serve tools.
  • Zoho Books: Free $0 for businesses under $50,000 in annual revenue, then Standard $20, Professional $50, Premium $70, Elite $150 and Ultimate $275 per month.

For an owner who will do the work, a self-serve tool is the usual fit, and QuickBooks Online is the common choice when an accountant already uses it. For an owner who wants the work done, a service is the better match.

Sources

This is general information, not legal, tax or accounting advice, and requirements vary and change.